Intergovernmental fiscal relationships are designed to allow the different levels of government in a federal system to coordinate their provision of public goods and services. We often think of decisions about taxation and public spending as stemming from a [Page 410]single “government.” Much more prevalent, however, is a multilevel system with fiscal responsibilities vested in both central and lower level governments. In the United States, for example, the power to tax and spend is held by more than 89,000 governmental jurisdictions: 1 federal, 50 state, 3,033 county, 19,492 municipal, 16,519 township, 13,051 school district, and 37,381 special district. Consequently, public finance in the United States operates through a complex federal system of interactions among multiple levels of government.

The field of study that examines the functions ...